Market Update: We’ll Surf Again

May 5, 2022

Every month, Rick Rieder – Managing Director and Head of Global Allocation Team for Blackrock – conducts a monthly call, where he shares pages of charts, data, and statistics that explain where markets have been and more importantly, where they are going. To help aid in understanding or perhaps to alleviate some of the confusion that has accompanied markets for the past few years, he always frames the calls with some clever analogy.

The call held on May 5th was titled “Polishing your surfboard while there’s a hurricane outside”

In addition to getting my immediate attention, this headline really does summarize how we’ve been feeling about markets as of late.

As we wrote about in our quarterly communications to clients, there are an immense number of known and significant uncertainties facing markets right now, all of which have a range of possible outcomes that are highly variable. They can be categorized into five main topics: Inflation, COVID (China lockdowns in particular), Ukraine/Russia conflict, mounting recession fears, and Fed policy.

Any one of these on their own would be quite the storm to navigate, but all of them together has proven too much for the markets – much like a hurricane, they have upended many segments of the market. S&P 500 had its worst 4-month start to a year in history (down 12%). And fixed income provided no cover, with the US aggregate index down 9.9%. Not since 2000 has there been a year when both the S&P 500 and US Agg were negative. We are in uncharted waters and it certainly feels as if we are in a generational storm.

The past four months have left many (us included at times) looking over our shoulders and questioning what we didn’t see, what we could have done differently, what we should have sold/bought in December 2021, and countless other questions and actions that quite frankly don’t offer much value at this time. The storm is here and we must move forward – so now what?

Playing off this theme, we know the storm always passes. So, we believe it’s essential to keep polishing our surfboards so we are ready to enjoy the calmer seas to come.

While the application of this will vary by client and individual (depending on a variety of factors such as risk tolerance, cash flow, liquidity, target allocation, and many others), here are some high level items investors may wish to consider. (Windermere clients, rest assured we are taking action on your behalf and will be discussing this with you at our next touchpoint)

  • Revisit cash balances – As we always stress, cash reserves are essential. Continually having the cash you need to emergencies or known expenses (like a trip or home project) allows you to leave your investments alone to do their work over time and avoid unplanned withdrawals or unsecured borrowing. Revisit the cash you have on hand – and if there is extra based on your calculations, perhaps you even consider deploying some over time, in line with your target allocation steadily from here

  • Consider making contributions now – if you plan to contribute to an IRA or employer plan during 2022, or if you have been contemplating a Roth conversion, now may be a good time to revisit those items and perhaps front-end load given current market levels and valuations of certain asset classes. This depends on your situation so please consult with your advisor

  • Reevaluate fixed income – Fixed income returns YTD have been the worst in decades, driven by the rapid rise in rates in the first few months of 2022. The good news is after these moves, yields on fixed income are now meaningfully positive and certain segments present a relatively attractive risk/reward. Look at your allocation to this area and consider some adjustments (but tread carefully, as all fixed income isn’t created equal)

  • Bottom up, Top down – For the past two years, it seemed as if every equity security would go up, it was just a matter of how much. That trend is over, with declines from highs ranging from a few percent to over 90%, depending on the stock. Now more than ever, in our view, you must combine bottoms-up review of the businesses with a top-down understanding of the economy and path from here (ie: the five items outlined above). As it relates to the review of businesses, we are focused on factors and businesses – not just broad sectors or indexes. We favor the quality factors (ie: free cash flow, low leverage, positive earnings revisions, low price/earnings to growth (PEG) ratios, short duration of cash flows, market leadership, and many more)

  • Review, act, move forward – You can make money back in a different way than you lost it. Oftentimes, there is a temptation to hold onto a security until you get back to breakeven. The value today is the capital you have, regardless of where you started. You can always reallocate to new ideas at any time (and keep in mind, there can be tax advantages to taking losses in a taxable account)

  • Ride out the storm – This is perhaps the most important piece of advice I can offer. When the sky is blue and the tides are calm, investing is easy and feels a bit like riding a wave. It seems as though nothing will (or can) go down and that the rally will last forever. 2022 has shown us all what we’ve always known – markets do not go up in a straight line. However, if you take any long-term graph of markets, you will see a marked trend “up and to the right” Heading for cover now and leaving the oceanside may feel good for a while, but most of us need to participate in markets to grow our wealth. We simply don’t have enough cash saved to support our lives for the duration and live as we wish. Resist temptation and stay close to shore – soon you will be surfing again!

As always, if you have any questions or thoughts on the market and our commentary, feel free to reach out.

Invest on,


Note: Above commentary as of publish date shown for blog post. All comments herein represent the opinions of Windermere and its principals. It is for educational and information purposes only and should not be relied upon as investment advice

Leave a note

  1. Leslie Hauser says:

    This is a great article! Love the new Friday 5.
    Though we have discussed the points laid out above many times it was nice to read them again.
    Thanks for putting these together!

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